Bank of America Corp (NYSE:BAC) — BAC stock looks like an attractive buy as it approaches a support line following news late last month that the financial institution finally passed the Federal Reserve’s stress test — with flying colors. Its capital plan had been rejected by the central bank in the two previous stress tests.
Bank of America received regulatory approval to return more capital to its shareholders. The firm announced plans for a $5 billion stock-buyback program and a 50% dividend hike. The current payout is 5 cents per share for a forward annual yield of 1.5%, but starting in the third quarter, it will increase to 7.5 cents a share.
Following the positive stress test results, S&P Capital IQ Equity Research reiterated its “Buy” rating on BAC stock. Its analysts have a 12-month price target of $17 on shares, which is more than 26% above the current price.
Turning to the chart, we see that BAC stock is still in a downtrend defined roughly by resistance at its 200-day moving average. However, after falling from over $18 in early November, it appears shares are forming a possible triple-bottom at about $13. The bottom is enforced by a buy signal from the MACD indicator last week and a pickup in accumulation.
Traders should look to buy BAC stock at $13 with a target of $15.15, just above its 200-day moving average. If successful, this will result in a profit of nearly 17%.
Investors can buy BAC stock at the market price for a run to Capital IQ’s fundamental target of $17. Even when that target is met, investors may still want to hold shares for a potential turnaround in the banking sector due to rising interest rates. If the Federal Reserve hikes rates late this year, it would have a positive impact on big financial institutions.
